Handling foreign bank accounts can seem straightforward until it comes to meeting the FBAR (Foreign Bank Account Reporting) requirements. If you and your spouse have foreign accounts exceeding $10,000, filing an FBAR correctly is crucial to avoid penalties.
Here’s the catch: understanding whether to file FBAR jointly or separately can be tricky. FBAR joint filing can simplify the process for married couples, but there are specific rules you need to follow. The FBAR limit for married filing jointly is the same $10,000 threshold, but it’s essential to know how to get around this as a couple. This guide will walk you through who needs to file an FBAR jointly, ensuring you meet your reporting obligations without any hassle.
Why is this important? Because staying compliant with FBAR regulations not only helps you avoid hefty fines but also keeps your financial reporting in check. Let’s dive in and clarify everything you need to know about who is required to file FBAR and FBAR filing jointly.
What is FBAR?
Foreign Bank Account Reporting (FBAR), or FinCEN Form 114, is a mandatory annual report for U.S. taxpayers with foreign accounts exceeding $10,000 in value at any time during the year. This form must be submitted to the Financial Crimes Enforcement Network (FinCEN) to help the U.S. government track and regulate overseas financial activities.
The FBAR requires you to disclose details about your foreign financial assets. These assets can include bank accounts, brokerage accounts, and other financial interests held in countries outside the United States. This reporting helps the U.S. government track and regulate overseas financial activities, ensuring compliance with tax laws.
Who Needs to File a FBAR?
The FBAR (FinCEN Form 114) is required for U.S. persons who have financial interests in or authority over certain foreign accounts. Here’s a clear guide on who needs to file a FBAR and what needs to be reported.
A U.S. person, including citizens, residents, corporations, partnerships, LLCs, trusts, and estates, must file an FBAR if:
- They have a financial interest in or signature authority over at least one financial account located outside the United States.
- The combined value of these foreign financial accounts exceeded $10,000 at any time during the calendar year.
What Qualifies You as a Foreign Account?
Generally, any account held at a financial institution outside the United States qualifies as a foreign account.
This includes various types of accounts, such as bank accounts (both checking and savings), brokerage accounts, retirement accounts, life insurance policies that earn interest, and trusts. These accounts must be reported if their combined value exceeds the threshold set for the FBAR filing.
Are You Considered a U.S. Person?
A U.S. person can be any of the following:
- A U.S. citizen
- A resident of the United States
- Anyone granted a green card to reside in the U.S. permanently
- Anyone who lived in the U.S. for at least 183 days out of the year
- Anyone who files a first-year election on their income tax return
- An entity formed under the United States or any of its territories
Do You Have Financial Interest or Signature Authority?
You must file if you have either a financial interest in or signature authority over foreign accounts. This means:
- Financial Interest: You own or have an interest in more than 50% of the assets or income of the account.
- Signature Authority: You have the authority to control the disposition of assets in the account through direct communication with the financial institution.
Do You Need to File an FBAR Jointly?
When it comes to filing the FBAR for joint foreign accounts, here’s what you need to know to ensure you’re doing it correctly:
Filing Jointly for Married Couples
If you and your spouse share foreign financial accounts, you can file a single FBAR together. This is applicable when all foreign accounts are jointly held, and neither spouse has separate foreign accounts.
Example: Suppose you and your spouse have a joint savings account in Germany, and neither has any other foreign accounts. In this case, you can file one FBAR together for the tax year.
Exception for Spouses
Spouses can avoid filing separate FBARs if they jointly own all foreign accounts. To take advantage of this exception, you need to:
- Complete and sign Form 114a, Record of Authorization to Electronically File FBARs.
- Ensure the filing spouse includes all jointly owned accounts in the FBAR.
If these conditions are not met, both spouses must file separate FBARs, each reporting the full value of the jointly owned accounts.
This ensures that the IRS receives complete information about foreign accounts and helps you stay compliant with FBAR requirements
Other Common FBAR Filing Scenarios
Knowing different FBAR filing scenarios helps you understand when and how to file correctly, ensuring you avoid mistakes and penalties.
Filing Requirements for Married Couples Filing Separately
If you and your spouse have separate foreign accounts, or if only one spouse owns qualifying foreign accounts, you will need to file a separate FBAR.
Filing Requirements for Minors
Guardians or parents must file an FBAR on behalf of minors or individuals who cannot file for themselves. It’s essential to file, even if the child isn’t required to file a tax return.
Common accounts for minors that must be reported include:
- Foreign life insurance policies
- Bank accounts abroad (e.g., savings accounts and trust funds)
Filing Requirements for Businesses
U.S. businesses, including corporations, partnerships, trusts, or LLCs, must also file an FBAR if they own foreign accounts exceeding the $10,000 threshold.
Understanding these scenarios can help ensure that you meet your FBAR filing obligations accurately and on time, avoiding any potential penalties.
When Do You Need to File the FBAR?
You need to file the FBAR if the combined value of all your foreign financial accounts exceeds $10,000 at any time during the calendar year. Even if the combined value was just over $10,000 for one day, you are required to file.
When is the FBAR Filing Deadline?
The FBAR filing deadline is April 15. For U.S. persons living abroad, the deadline is June 15. If you miss this deadline, there is an automatic extension to October 15.
What Happens If You Miss the FBAR Deadline?
Missing the FBAR deadline can result in significant penalties. Even if you were unaware of the filing requirement, you could still face fines. Penalties are more severe for intentional violations and can even include jail time.
Fortunately, there are several options to correct unfiled FBARs, such as:
- Amended FBARs or “quiet disclosure”
- Delinquent FBAR Submission Procedures
- Streamlined Foreign Offshore Procedures (for U.S. expats)
- Streamlined Domestic Offshore Procedures (for those living in the United States)
- IRS Voluntary Disclosure Program
Understanding these options can be complex, and mistakes can lead to costly penalties. It’s advisable to consult with SWAT Advisors to help guide you through the process.
Alongside helping with the FBAR, we offer other tax-related solutions with the expertise of our team. Our team consists of tax planner in California and beyond, business continuity consultants, and exit planning advisors – all committed to providing you with the best financial strategies and support.
How to Calculate the Maximum Account Value?
To find out if the total value of your foreign financial accounts exceeds the $10,000 threshold, you need to calculate the maximum value of each account during the calendar year. Here’s how:
- Find the Highest Balance: Look for the highest amount of money and assets in each account throughout the year. You can use periodic account statements, like quarterly reports, to find this value.
- Use Statements Wisely: If your account statements are issued at least every three months and show the highest balance during the year, you can rely on them.
- Estimate if Needed: If you don’t have regular account statements, use other reasonable methods to estimate the highest value of the account during the year.
By following these steps, you can determine if your total foreign account value exceeds $10,000 and if you need to file an FBAR.
Common Mistakes Made When Filing FBAR for Joint Accounts
Avoiding common mistakes when filing FBAR for joint accounts can save you from costly penalties and ensure compliance with regulations. Here are some key errors to watch out for:
- Incorrect Reporting of Joint Accounts: Each person with a financial interest in a jointly owned foreign account must report the entire value of the account on their FBAR. Both individuals must include the full account balance, not just their share.
- Missing Spouse’s Financial Accounts: If you and your spouse jointly own all reportable accounts, you can file a single FBAR using Form 114a, which authorizes one spouse to file for both. Ensure all accounts are included and the form is signed by both spouses.
- Separate Filings When Necessary: If either spouse has individual foreign accounts, separate FBARs must be filed. Each spouse should report the total value of their individual accounts and the entire value of jointly owned accounts.
- Confusing Individual and Joint Accounts: It’s important to correctly categorize accounts. Joint accounts must be reported under jointly owned sections, while individual accounts should be listed separately to avoid inaccuracies.
- Failing to Report All Joint Accounts: Ensure every joint account is reported. Omitting any account, even inadvertently, can result in penalties. Double-check to include all joint foreign accounts you hold with your spouse.
Penalties for Failure to File an FBAR
Understanding these penalties is crucial for anyone with foreign financial accounts to avoid severe consequences, including substantial fines and imprisonment.
Civil Penalties
Knowing these penalties helps you avoid hefty fines and legal issues, empowering you to ensure compliance and mitigate risks.
1. Non-Willful Violations:
- Maximum penalty of $10,000 per violation.
- There is no penalty if the violation was due to reasonable cause and the account balance was properly reported.
2. Willful Violations:
- The maximum penalty is the greater of $100,000 or 50% of the balance in the account at the time of the violation.
- The IRS and courts may impose penalties based on specific case details and interpretations.
- FBAR cases have a six-year statute of limitations from the due date of the FBAR.
Criminal Penalties
Awareness of these penalties is essential to avoid severe legal repercussions and protect yourself from significant fines and imprisonment.
1. General Non-Compliance:
- Fine of up to $250,000 and/or imprisonment for up to 5 years.
2. Non-Compliance Associated with Other Laws or Illegal Activity:
- Fine of up to $500,000 and/or imprisonment for up to 10 years if the failure to file is part of a pattern of illegal activity involving more than $100,000 in a 12-month period.
- These penalties highlight the importance of complying with FBAR filing requirements to avoid severe financial and legal consequences.
Filing Your FBAR Electronically
You can file your FBAR e filing using the BSA E-Filing System without needing to register for an account. Let’s get to the benefits of using BSA E-Filing
The BSA E-Filing System makes filing faster, more secure, and easier to manage.
Overall Benefits
The BSA E-Filing System boosts security with SSL and user IDs/passwords, ensuring safe submissions. It speeds up the process by quickly sending data to FinCEN and simplifies record-keeping and submission management.
For Batch Filers
Batch filers save money by eliminating tape cutting, internal routing, and shipping. The system also removes the need for handling diskettes, allows real-time status checks, and provides faster acknowledgments from FinCEN.
For Individual Filers
Individual filers benefit from easier data entry with electronic forms, streamlined internal form routing, and convenient data storage. The system also ensures accurate, error-free submissions with quick electronic acknowledgments from FinCEN.
System Requirements for Filing FBAR Online
Internet Connection
You need a stable internet connection while FBAR e filing and submitting the form. If you lose connection, your data will be lost, and you will have to start over.
Supported Browsers
The system works with these browsers:
- Chrome 41.0 or higher
- Firefox 35.0 or higher
- Internet Explorer 10 or higher
To check your browser version, open the browser, go to the Help menu, and select “About.”
How to File Your FBAR?
File your FBAR e filing through FinCEN’s BSA E-Filing System. Do not include it with your federal tax return.
- Visit the Website: Go to BSA E-Filing System.
- Start the Process: Click “Start Now” under the Online Form E-Filing Method.
- Enter Contact Information: On the Filer Contact Information page, provide your contact details. Your email will be used for status updates about your FBAR submission.
- Access FBAR Home Page: Click “Start FBAR” at the bottom of the Filer Contact Information page.
Name Your Filing: In the Filing name field, enter a descriptive name to identify your FBAR (e.g., SMITH FBAR 2024). - Complete the FBAR: Fill out the FBAR form. You can add more parts or accounts by clicking the small plus (+) signs. Ensure all required fields, marked with an asterisk (*), are completed.
- Sign the Form: When ready to submit, go to the Home tab and click “Sign the Form” to accept the signature agreement. If you need to make changes after signing, click “Remove Signature” on the Home tab.
- Submit the Form: Once the form is error-free and signed, return to the Home tab and click “Submit”. A confirmation page will be displayed.
- Download and Save: Click “Download Copy of My FBAR” on the confirmation page to save a read-only copy of your submission. Save the confirmation page from your browser for your records. Save the file in a familiar location on your computer.
- Receive Status Email: Shortly after submission, you will receive an email notification about the status of your FBAR submission. Save this email for your records.
- Final Acknowledgment: In about two business days, you will receive a second email confirming that your FBAR submission has been acknowledged by FinCEN and assigned a unique BSA ID. Save this email for your records. Your FBAR filing is now complete.
In Closing!
Filing an FBAR jointly can be a smart move for married couples with foreign accounts, but it requires careful attention to detail. Ensuring you stay within the FBAR limit for married filing jointly is essential to avoiding penalties.
It’s essential to report the full value of FBAR joint accounts, correctly categorize individual and joint accounts, and include all relevant accounts.
Avoiding errors when filing FBAR is equally as vital for compliance. Simple mistakes can lead to significant penalties, so it’s worth double-checking your information. If you’re unsure about any aspect of the process, seeking professional guidance can be invaluable.
Remember, staying compliant with FBAR e-filing not only protects you from fines but also keeps your finances transparent and well-managed. If you have any doubts about who is required to file FBAR or the specifics of FBAR filing, don’t hesitate to consult SWAT Advisors. We can help you with the FBAR e-filing process accurately and efficiently.
In addition to helping you stay compliant with FBAR rules and assisting with filing, we offer extensive tax planning services. Our expert tax planning advisors provide tax planning solutions, including specialized tax planning for doctors, ensuring you get the best financial advice and strategies.
